Banks are hiking pay to stop the exodus of juniors from IBD

If you're an analyst or associate in an investment bank, it seems that your pay is rising. Juniors are leaving banking in such large numbers, that banks are having to pull their main lever (compensation) to stem the tide.

Morgan Stanley went first. The U.S. bank increased salaries for its associates by 20-25% depending upon their class and region from August 2018. Now, Logan Naidu, CEO of recruitment firm Dartmouth Partners, says other banks appear to be hiking pay too. - Following the summer bonus round for analysts at most U.S. investment banks, Naidu says total compensation (salaries plus bonuses) for analysts in investment banking divisions (IBD) is typically up 15% to 20% on last year.

Based on Dartmouth's previous figures for analyst pay, the implication is that first year, second year and third year analysts at leading U.S. investment banks in London are now earning up to £86k ($112k), £112k and £136k respectively in total compensation.

The pay rise follows heavy attrition as banks' carefully cultivated juniors cut the cord and look for jobs elsewhere. As we reported last week, departing investment banking analysts suggest as many as 80% of juniors quit banking in the first three years, amidst complaints of of long hours and uninspiring work.

Naidu says attrition in banking is higher than it's ever been. "People now just see banking as a stepping stone - either to private equity or to the next phase in their lives." Accordingly, Clayton Dubilier & Rice, the rarefied U.S. private equity fund, just poached Simone Curti from J.P. Morgan just six months after he moved to London from New York as an associate. In August, it hired Amit Alleck, a third year analyst from Credit Suisse. Even juniors who love banking are leaving - one Morgan Stanley analyst quit for private equity despite writing a long article praising the bank. "For me, banking was only ever a stop-off," he said.

Whether higher pay will stop the outflow from banks remains to be seen. "My daughter's boyfriend was putting in over 80 hours a week with no sleep, barely eating enough to survive and was getting sick all the time," one middle-aged observer in the U.S. tells us. "He left banking and found another job very quickly elsewhere. It wasn't about the money - it was the lifestyle."

At best, higher pay might provide a sticking plaster to get juniors through the difficult years until things improve. One managing director tells us that a lot of juniors get burned out and don't appreciate how hard the job is, but that IBD gets easier with time. "You develop relationships and you learn how to work in the environment. You find out ways of making the job work for you."

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